Reckoning arrives for men behind bank failures

A Florida Highway Patrol official stands guard at the Orion Bank after it was taken over by state and federal banking regulators in downtown Sarasota on November 13, 2009.

HERALD-TRIBUNE ARCHIVE / 2009

By JOHN HIELSCHER

Published: Monday, March 4, 2013 at 1:00 a.m.

Last Modified: Saturday, March 2, 2013 at 4:56 p.m.

The pace of bank failures has slowed, but federal lawsuits targeting the bankers who ran those faded institutions are speeding up. The Federal Deposit Insurance Corp. has filed seven lawsuits so far this year against officers and directors of failed banks. Those actions are part of 51 negligence complaints filed since mid-2010 that seek hundreds of millions of dollars from bank executives and board members.

One of the most recent FDIC filings seeks at least $53 million from four directors of the failed Orion Bank of Naples, which was a major lender in Sarasota and Manatee counties during the real estate boom of the mid-2000s.

"Their unwillingness to inform themselves about, or exercise meaningful oversight over, Williams' performance was so apparent that Williams eventually began boasting to other bank employees that the defendants would never reverse his decisions," attorney Aviva L. Wernick wrote in the suit.

A total of 66 banks in Florida failed during the Great Recession and its aftermath. The FDIC so far has gone after officers and directors of four of those institutions, including the former Century Bank of Sarasota.

The agency also reached a pre-suit settlement with eight former executives and directors of the defunct First Priority Bank of Bradenton. They, and their liability insurer, agreed last year to pay $1.75 million to resolve any FDIC claims.

FDIC spokesman David Barr said the agency has authorized, but has yet to file, another 50 lawsuits against directors and officers of failed institutions. As of Feb. 28, a total of 468 U.S. banks have failed since 2008.

"We will most likely be seeing more lawsuits filed down the road," Barr said.

The FDIC begins investigations immediately after a bank failure to determine its cause, and tries to complete that work within 18 months.

It typically has three years from the failure date to file a lawsuit, though that can be extended. As in the First Priority case, settlements are sometimes reached to avoid litigation.

"If those talks end up not going anywhere, then we file a complaint in U.S. District Court," Barr said.

During the savings-and-loan crisis of the late 1980s and early 1990s, the agency filed "D&O" -- directors and officers" lawsuits in about 25 percent of the nearly 750 failures.

The FDIC and the former Resolution Trust Corp. collected $6.46 billion from professional liability claims from 1986 through 2011.

It is impossible to say at this juncture if the ratio or dollar amounts collected will be similar in this cycle of failures.

Not all bank failures are caused by negligence or inappropriate actions by executives and directors, of course, in which case the FDIC does not take any action.

There also are instances in which neither the individuals nor their insurer would generate enough money to justify a lawsuit.

But in many cases, the agency determines there is sufficient evidence to take the matter to court.

Since 2009, the FDIC has authorized suits against 836 individuals for liability. That includes actions against 369 officials last year and 94 in the first two months of 2013.

Many of the more recent lawsuits, however, involve bank failures dating back several years. Both Century and Orion, for example, failed on Nov. 13, 2009. None of the cases involving local lenders, however, have trial dates attached to them as yet, records show.

While some have criticized the FDIC for not aggressively suing more bankers, Barr said the FDIC is meticulous about making good cases.

"A lot of people were thinking we weren't taking action and moving fast enough," he said. "But if we sue people, we want to make sure we have cause to do so. That takes time. When it comes time to file lawsuits, we don't want them thrown out of court."

Southwest Florida ties

Four of the 51 suits filed so far are against Florida banks, and three of those have ties to Southwest Florida.

In all, the agency and taxpayers lost more than $1.2 billion as a result of those banks failures.

The first lawsuit was filed last March 2012 to recover nearly $63 million from the former chief executive and the directors of the failed Florida Community Bank of Immokalee, which operated offices in Port Charlotte and Punta Gorda, in Charlotte County.

The FDIC accused CEO Stephen L. Price and the bank's board of directors of "grossly negligent" lending and acting in a "reckless" manner that led to the bank's collapse in January 2010.

The agency specifically cited a $5.9 million personal loan made to Orion CEO Williams as evidence. That loan, cut in October 2008, was made by Price, according to the lawsuit. Price's involvement was significant because it violated his lending authority as well as the bank's loan policies, since it was secured by Williams' shares in Orion, which were not readily marketable. Those shares became worthless after Orion failed.

In November, the FDIC sued the former CEO and directors of Century Bank, accusing them of gross negligence in the bank's $357 million demise.

The agency charged the five men with engaging in risky lending even after Century fell into deep financial trouble, including cutting $16 million in loans to a Ponzi schemer from New York.

The suit said the directors "routinely" failed to use safe and sound banking practices when approving large loans.

Named in the lawsuit against Century were its former president and chief executive, John P. O'Neill, who also was a director; bank owner Barry M. Florescue; chairman Charles W. Miersch; and directors Stanley Kreitman and James M. Nickerson. O'Neill and Florescue live in Broward County. Miersch lives in Tennessee, Kreitman in New York and Nickerson in Indiana.

Attorneys for the men recently filed a 30-page response that asked for the suit to be dismissed and for an order that would force the FDIC to produce a more definitive statement on the allegations of negligence.

At $728 million in assets, Century was the largest failure among the nine bank closures in Sarasota, Manatee and Charlotte counties.

And in late January, the FDIC went after the four Orion directors over the failure that cost the agency's insurance fund $880 million.

Sued were James Aultman of Marathon Beach, Earl Holland of Fort Myers, Alan Pratt of Vero Beach and Brian Schmitt of Marathon. All had been directors for at least 12 years; Holland sat on the board for 22 years.

By 2004 Williams had become the "dominant decision maker" at Orion, subject to little or no scrutiny from the directors who were supposed to supervise and oversee him, according to the suit.

"Far from acting as a check on Williams, the defendants made Williams' authority so absolute that one bank officer even characterized Orion as a 'dangerously cultish environment,' " Wernick said in the lawsuit.

The directors allowed Williams and Orion to take on high concentrations of commercial real estate, acquisition and development and construction loans, even after the real estate market began to decline. The directors often approved large and complex loans with less than four minutes of review and discussion, the suit says.

Williams pleaded guilty last year to three counts of conspiracy to commit bank fraud and making false statements to bank regulators. He is serving a six-year sentence at Federal Prison Camp Montgomery in Alabama, a minimum security facility within Maxwell Air Force Base.

He joined two other Orion executives and a bank borrower, who are all serving time in the federal prison system on bank-fraud-related charges.

Williams is not off the hook with the FDIC, either. A federal judge has ordered him to pay $31 million in restitution to the agency for his role in Orion's collapse.

<p>The pace of bank failures has slowed, but federal lawsuits targeting the bankers who ran those faded institutions are speeding up. The Federal Deposit Insurance Corp. has filed seven lawsuits so far this year against officers and directors of failed banks. Those actions are part of 51 negligence complaints filed since mid-2010 that seek hundreds of millions of dollars from bank executives and board members.</p><p>One of the most recent FDIC filings seeks at least $53 million from four directors of the failed Orion Bank of Naples, which was a major lender in Sarasota and Manatee counties during the real estate boom of the mid-2000s.</p><p>The suit alleges the four committed "a pattern of unconsidered acquiescence" -- basically serving as rubber stamp -- to the whims of now-imprisoned Orion chief executive Jerry J. Williams.</p><p>"Their unwillingness to inform themselves about, or exercise meaningful oversight over, Williams' performance was so apparent that Williams eventually began boasting to other bank employees that the defendants would never reverse his decisions," attorney Aviva L. Wernick wrote in the suit.</p><p>A total of 66 banks in Florida failed during the Great Recession and its aftermath. The FDIC so far has gone after officers and directors of four of those institutions, including the former Century Bank of Sarasota.</p><p>The agency also reached a pre-suit settlement with eight former executives and directors of the defunct First Priority Bank of Bradenton. They, and their liability insurer, agreed last year to pay $1.75 million to resolve any FDIC claims.</p><p>FDIC spokesman David Barr said the agency has authorized, but has yet to file, another 50 lawsuits against directors and officers of failed institutions. As of Feb. 28, a total of 468 U.S. banks have failed since 2008.</p><p>"We will most likely be seeing more lawsuits filed down the road," Barr said.</p><p>The FDIC begins investigations immediately after a bank failure to determine its cause, and tries to complete that work within 18 months.</p><p>It typically has three years from the failure date to file a lawsuit, though that can be extended. As in the First Priority case, settlements are sometimes reached to avoid litigation.</p><p>"If those talks end up not going anywhere, then we file a complaint in U.S. District Court," Barr said.</p><p>During the savings-and-loan crisis of the late 1980s and early 1990s, the agency filed "D&O" -- directors and officers" lawsuits in about 25 percent of the nearly 750 failures.</p><p>The FDIC and the former Resolution Trust Corp. collected $6.46 billion from professional liability claims from 1986 through 2011.</p><p>It is impossible to say at this juncture if the ratio or dollar amounts collected will be similar in this cycle of failures.</p><p>Not all bank failures are caused by negligence or inappropriate actions by executives and directors, of course, in which case the FDIC does not take any action.</p><p>There also are instances in which neither the individuals nor their insurer would generate enough money to justify a lawsuit.</p><p>But in many cases, the agency determines there is sufficient evidence to take the matter to court.</p><p>Since 2009, the FDIC has authorized suits against 836 individuals for liability. That includes actions against 369 officials last year and 94 in the first two months of 2013.</p><p>Many of the more recent lawsuits, however, involve bank failures dating back several years. Both Century and Orion, for example, failed on Nov. 13, 2009. None of the cases involving local lenders, however, have trial dates attached to them as yet, records show.</p><p>While some have criticized the FDIC for not aggressively suing more bankers, Barr said the FDIC is meticulous about making good cases.</p><p>"A lot of people were thinking we weren't taking action and moving fast enough," he said. "But if we sue people, we want to make sure we have cause to do so. That takes time. When it comes time to file lawsuits, we don't want them thrown out of court."</p><p><b>Southwest Florida ties</p><p></b></p><p>Four of the 51 suits filed so far are against Florida banks, and three of those have ties to Southwest Florida.</p><p>In all, the agency and taxpayers lost more than $1.2 billion as a result of those banks failures.</p><p>The first lawsuit was filed last March 2012 to recover nearly $63 million from the former chief executive and the directors of the failed Florida Community Bank of Immokalee, which operated offices in Port Charlotte and Punta Gorda, in Charlotte County.</p><p>The FDIC accused CEO Stephen L. Price and the bank's board of directors of "grossly negligent" lending and acting in a "reckless" manner that led to the bank's collapse in January 2010.</p><p>The agency specifically cited a $5.9 million personal loan made to Orion CEO Williams as evidence. That loan, cut in October 2008, was made by Price, according to the lawsuit. Price's involvement was significant because it violated his lending authority as well as the bank's loan policies, since it was secured by Williams' shares in Orion, which were not readily marketable. Those shares became worthless after Orion failed.</p><p>In November, the FDIC sued the former CEO and directors of Century Bank, accusing them of gross negligence in the bank's $357 million demise.</p><p>The agency charged the five men with engaging in risky lending even after Century fell into deep financial trouble, including cutting $16 million in loans to a Ponzi schemer from New York.</p><p>The suit said the directors "routinely" failed to use safe and sound banking practices when approving large loans.</p><p>"In short, the defendants regularly violated the bank's policies and prudent banking standards, engaged in numerous wrongful acts and, as a direct and proximate result, caused substantial damages," attorney Joseph G. Galardi said in the complaint.</p><p>Named in the lawsuit against Century were its former president and chief executive, John P. O'Neill, who also was a director; bank owner Barry M. Florescue; chairman Charles W. Miersch; and directors Stanley Kreitman and James M. Nickerson. O'Neill and Florescue live in Broward County. Miersch lives in Tennessee, Kreitman in New York and Nickerson in Indiana.</p><p>Attorneys for the men recently filed a 30-page response that asked for the suit to be dismissed and for an order that would force the FDIC to produce a more definitive statement on the allegations of negligence.</p><p>At $728 million in assets, Century was the largest failure among the nine bank closures in Sarasota, Manatee and Charlotte counties.</p><p>And in late January, the FDIC went after the four Orion directors over the failure that cost the agency's insurance fund $880 million.</p><p>Sued were James Aultman of Marathon Beach, Earl Holland of Fort Myers, Alan Pratt of Vero Beach and Brian Schmitt of Marathon. All had been directors for at least 12 years; Holland sat on the board for 22 years.</p><p>By 2004 Williams had become the "dominant decision maker" at Orion, subject to little or no scrutiny from the directors who were supposed to supervise and oversee him, according to the suit.</p><p>"Far from acting as a check on Williams, the defendants made Williams' authority so absolute that one bank officer even characterized Orion as a 'dangerously cultish environment,' " Wernick said in the lawsuit.</p><p>The directors allowed Williams and Orion to take on high concentrations of commercial real estate, acquisition and development and construction loans, even after the real estate market began to decline. The directors often approved large and complex loans with less than four minutes of review and discussion, the suit says.</p><p>Williams pleaded guilty last year to three counts of conspiracy to commit bank fraud and making false statements to bank regulators. He is serving a six-year sentence at Federal Prison Camp Montgomery in Alabama, a minimum security facility within Maxwell Air Force Base.</p><p>He joined two other Orion executives and a bank borrower, who are all serving time in the federal prison system on bank-fraud-related charges.</p><p>Williams is not off the hook with the FDIC, either. A federal judge has ordered him to pay $31 million in restitution to the agency for his role in Orion's collapse.</p>